Congress should do now what it should have done back in the fall: kill the Wall Street bailout program.

After wasting $350 billion on a program that was misrepresented from the outset, and investing hundreds of billions of dollars in failing financial institutions that it could have bought outright for less than it was investing in them, the Treasury Department, now acting at the direction not of the Bush administration and outgoing Treasurer Hank Paulson, but the Obama administration, is asking for the other half of the Troubled Assets Relief Fund (TARP).

Aside from the corrupt aspect of this boondoggle—the handing over of borrowed taxpayer money to the very bankers and investors who created the mess we’re in today—the whole TARP program is premised on a false assumption: namely that the US economy’s problem is a freeze in lending.

This is simply untrue.

Three economists at the Minneapolis Fed, in an article published on the Minneapolis Federal Reserve’s website, show using the Fed’s own data that at the very point in September that Paulson and Fed Chairman Ben Bernanke were warning Congressional leaders in a secret session that the bank lending had entirely seized up and that US was “days away” from a meltdown that would lead to riots in the streets and the possible need to impose martial law, in fact interbank lending was at record levels, and that commercial lending was also flowing normally. True, long-term bond interest rates were unusually (though not unprecedentedly) high, but then, that’s what you would expect when the treasury is borrowing enormous sums and lowering interest rates, and thus raising inflation expectations long term.

The real point of the damning report by the Minneapolis Fed’s plucky trio of economists, is that banks aren’t lending not because they don’t have enough capital, but because for the first time in a decade, bankers are being prudent the way banks are supposed to be. They are looking at companies seeking loans and saying, “show me your balance sheet and your order book.” Companies that are in trouble financially, or that are seeing their sales plummet are being rightly turned away, but companies with solid balance sheets and sales are able to borrow what they need.

The other point is that contrary to the claims being made by both Bush and Obama economic teams about the importance of the need to keep credit flowing so that, as Paulson put it, companies will be able to meet payroll and so that they won’t start laying off employees, what is needed is not easier credit but programs to protect the incomes of workers who are losing their jobs.

The record shows that even as the government has blown $350 billion on a Wall Street bailout, unemployment has soared, housing price declines have accelerated, and retail sales have continued on a six-month march into the ground. While administration touts are claiming that if there had been no bailout, things would be worse, there is no evidence to support this claim. Things are terrible as it is—in fact the economic collapse is being said to be the worst since the onset of the Great Depression of the 1930s. How the hell much worse could it have been?

Which brings us back to the current Obama administration demand for the other $350 billion in TARP funds.

It seems clear that what the country is facing is a classic recession (or depression), in which spiraling industry layoffs of workers is leading to a collapse in spending, which in turn leads to a further slowdown in business and more layoffs. Because the social safety net in America has been systematically shredded, with unemployment benefits only covering a minority of laid-off workers, and then only for a short period and at only a small fraction of their prior wages, the rise in unemployment is crippling the economy. Being laid off in America is an unmitigated disaster—no health care, no income, and a nightmare struggle even to obtain food stamps. (People with homes and savings can be screwed out of assistance because they have too many assets, for example.)

Nor is the other Obama rescue measure—the proposed $800-billion so-called “stimulus” package, adequately addressing the problem. Focusing on tax breaks (especially tax breaks for business) and on large infrastructure projects is again wasting precious stimulus resources. In the case of tax cuts, studies have repeatedly shown that business tax cuts do nothing to stimulate business activity but rather just enrich managers and shareholders, while tax cuts to consumers do not even return a dollar for dollar stimulus. Meanwhile, investing in infrastructure projects only provides incomes to relatively skilled heavy equipment operators these days, not to the broad masses of people who need help. Moreover, because the pool of workers trained to work on such projects is limited, all boosting that spending does is push up wages in that sector. (Besides, the last thing America needs is more and better roads; it needs a wholly revitalized and expanded mass transit system, inter- and intra-city, and that’s getting short shrift in this proposal.)

A stimulus package that works would expand welfare and food stamp benefits for the chronically unemployed, would boost funding for education—K through college, would provide grants to states and local governments to compensate for declining tax bases, with provisos that the money be used to hire more teachers, more teachers’ aides, more librarians, more trash collectors, etc. It would expand unemployment insurance coverage to all workers and extend those payments for the duration of the recession while raising the payments to provide a real subsistence wage. It would fund government run programs to hire the unemployed, creating jobs that meet the skill-set of the unemployed. The CETA program, part of the grotesquely maligned War on Poverty of the late 1960s, would be a good model for this.

Meanwhile, of course, since we’re talking about big bucks here, the new administration should be looking to the future and figuring out how to get the budget deficit back in check. And there, a first target has to be the military, now chewing through $1 trillion a year, most of it wasted and wrongheaded. For starters, the war in Iraq should be ended. Period. Ditto for Afghanistan—a doomed venture. Then too, the 800 overseas military bases should be closed down, along with the nation’s nuclear missile and bomb program (okay, as long as China, Russia, France, the UK, Israel and a few other countries have the bomb, we could keep a few for negotiating purposes, pending a global nuclear disarmament agreement, which should be a top priority). The truth is, the US military budget could be cut in half or even more, without anyone really noticing. The US would be the stronger for it, not weaker or more vulnerable. Even at half strength, no potential enemy would want to threaten the US. (In fact, arguably, a US that had pulled back from its current global stance would be far more formidable an opponent if directly threatened.)

We are facing a grave economic crisis, but the boneheads in the Bush and Obama economic teams are clueless, or are too busy protecting their friends on Wall Street, to either know or care.

Only public action will set this right. Hopefully, the public is getting scared enough now to pry their eyes away from the tube and start demanding that it be done, before another trillion dollars is thrown down a rat hole.

DAVE LINDORFF is a Philadelphia-based journalist and columnist. His latest book is “The Case for Impeachment” (St. Martin’s Press, 2006 and now available in paperback). His work is available at www.thiscantbehappening.net